Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com US stock indexes failed to run to new highs (DJIA) yesterday, getting to 40 points of a new all-time high the index failed and selling took the index back to 110 points frm a new high. Early this morning in pre-market trade the DJIA -63. At 8:30 Jan personal income, thought to be -2.4%, declined 3.6%; personal spending was right on estimates +0.2%, Dec spending revised to +0.1% frm +0.2%. Dec income unchanged frm original data, +2.6%. The decline in income somewhat of a surprise but there was no reaction to the lower income in markets. The decline in income, the most in 20 years, was likely due to businesses paying bonuses and dividends earlier than usual to avoid increases in taxes that kicked in Jan which is normally a strong month for incomes. The decline in income cut the savings rate to 2.4%. US bonds and MBSs rallying this morning on weak stocks and soft data out of Europe showing unemployment increased and manufacturing declined. The German bund at its lowest rate in two months as investors seek safety; 1.41% reflecting increased concerns in the EU with Italy’s messy election and economic data worsening. Unemployment increased to 11.9% in Jan, the highest since 1995. In the US the 10 yr note yield at 9:00 sat at 1.86% down 3 bp and at its first technical resistance hurdle. MBS prices at 9:00 +12 bp for 30 yr mortgages. At 9:30 the DJIA opened down 40, NASDAQ +16, S&P -6; 10 yr note 1.86% -2 bp; 30 yr MBS price +17 bp frm yesterday’s close. The U. of Michigan consumer sentiment index at 9:55, expected at 76.0 frm 76.3, the index was up to 77.6 and mirroring the increase in the consumer confidence index reported on Monday. The national ISM manufacturing index at 10:00 expected at 52.8 frm 53.1, the index increased to 54.2. The index the highest since June 2011; all the interior components also better than thought. The initial reaction improved stock indexes, at one point about 9:45 the DJIA was off over 100 points, at 10:05 -49 points. January construction spending also at 10:00, expected +0.6%, declined 2.1%. Quite a surprise, Dec spending was revised to +1.1% from +0.9%. This is sequester day, the day that has been characterized by many that the US starts an economic decline; layoffs, increased unemployment, 1000s of flights canceled, construction workers in the military sector all unemployed, thousands of dilapidated bridges will collapse, teachers jettisoned, children with no early education or child care----and the list goes on. Baloney! The sequester is a serious issue, however those scare tactics are ridiculous. Most of the dire forecasts will not occur; a ploy that has been the hallmark of any legislation for the last four years, the sky is falling strategy employed in Washington in place of sound debate to resolve many growing problems. Use the media, people will believe anything from media. According to the latest poles, only one in four actually know much about the sequester other than what they are fed. Certainly markets don’t care much and ignore the politicking and grandstanding. The more serious issue is on Mach 27th, the government will run out of money. If so a government shutdown will occur. Expect the next few weeks to be littered with mud, the President adding to his frequent flier miles, and Republicans attempting to appeal to tea party far out right wingers. The 10 yr note is trading at its first level of resistance at 1.85%. Three times this week the note fell to that level but was unable to break through. A break below will set up a run to 1.81% where the 100 day average resides. Still holding that rates will decline but also that they won’t decline much more than 1.75% on the 10 unless the EU trips into more trouble. Continue to expect increased volatility in the equity arena and in urn in the bond markets.